Govt might overrule broadband pricing advice

Relevant offers

John Key says the government will not rule out using legislation to overrule Commerce Commission recommendations for wholesale broadband pricing.

Today the commission proposed deep cuts to the price Chorus can charge for Unbundled Bitstream Access (UBA) used to provide broadband, from $21.46 to $8.93 a month.

Chorus has said the news could knock $150 million a year from its earnings from 2014, and may prompt a rethink of its business model.

Speaking at the post-cabinet press conference today, Mr Key told reporters that the commission’s report was only interim and may be changed substantially in the coming months, but in its current form it posed problems for the roll out of ultra fast broadband (UFB).

‘‘The government needs to go away and fully assess that [report] but in its current form it would be very problematic,’’ he said.

‘‘It has significant implications both for the company [Chorus] and for UFB... It substantially reduces the income of that company and its capacity around broadband.’’

Asked if he could rule out using legislation to deal with the problems, Key said ‘‘No, I'm not ruling that out.’’

CHORUS WARMS EARNINGS COULD FALL $180M

Chorus says its annual earnings could fall by $180 million as a result of two Commerce Commission rulings issued today, one of which is only a draft.

Chorus' shares are down 11.5 per cent at $3.01 after trading resumed following a lunchtime trading halt.

The commission ruled the price that Chorus can charge for its phone lines should fall by less than a dollar from its current average of $24.46 a month to $23.52,

Chorus said the cut would immediately flow through to 1.6 million phone lines, cutting $20m off its annualised earnings before interest, tax, depreciation and amortisation with immediate effect.

The commission also proposed much deeper cuts of $12.53 a month to the price Chorus can charge for Unbundled Bitstream Access (UBA) used to provide broadband, which would fall from $21.46 to $8.93 a month. In most cases UBA is purchased along with a phone line.

Telecommunications Commissioner Stephen Gale stressed today that price was not finalised and would be subject to consultation.

Chorus said that if the UBA cut did go through as proposed, that would knock an additional $150m to $160m off its annual earnings from December 2014. The commission is due to finalise the UBA price by June.

Communications Minister Amy Adams said the Government would review the final and draft decisions, which she said were "potentially significant for the industry and end users".

Adams appeared to signal resistance to the steep UBA price cut given the possible effect the cut might have on the uptake of fibre-based ultrafast broadband.

"I note that the commission's report says it has only found two countries to benchmark the UBA rate against, and has struggled to find a broad sample of countries," she said.

"New Zealand is one of the few countries in the world to have structurally separated its main telecommunications company, while at the same time rolling out a fibre network. This potentially highlights the need for a pricing methodology appropriate for the New Zealand context," she said.

Chorus said it had "very serious concerns" about the potential impact of the commission's decisions.

"While noting that the UBA decision is a draft, and there is a process to run, management expects that the collective impact of these two changes - if the draft UBA decision were to become final - could require Chorus to fundamentally rethink its business model, capital structure and approach to dividends.

"The world is watching to see if New Zealand's world-leading UFB policy and the demerger of Chorus as a wholesale-only company will be a success story," it said.

Chief executive Mark Ratcliffe said the company planned to talk to the Government.

“At the very least, we believe that the Government should immediately look to bring forward the regulatory review already required by legislation in 2016, in order to bring about a sustainable framework next year that will support the UFB vision,” he said.